Law

(1) Where, after the making of a contract for the supply of goods or services and before the goods or services are supplied, there is a change in the VAT charged on the supply, then, unless the contract otherwise provided, there shall be added to or deducted from the consideration for the supply an amount equal to the change.

(2)……

(3) References in this section to a change in the VAT charged on a supply include references to a change to or from no VAT being charged on the supply (including a change attributable to the making of an election under paragraph 2 of Schedule 10)

Commentary

Section 89(1) and (3) applies where there is a change in VAT rate or liability that occurs between the time a contract is finalised and the supply taking place. Unless the contract specifically provides for this section not to have effect, the contract price will be subject to adjustment to take into account the change. It applies whether the rate goes up or down and where a previously exempt or zero-rated supply becomes taxable at a positive rate.

This provision is unusual in the sense that HMRC has no jurisdiction over its application. For further information see VATTOS7230.